Why do companies repurchase their own stock?

Question

Today a company I own shares in repurchased some of its own shares. What is the purpose?

Answer 1

Wow, what a variety of answers.

Here's the scoop. Yes, some companies do it to manipulate their stock price a little, but the main reason to buy back shares is if a company cannot find alternative areas in which to invest their capital that will earn a higher rate of return. Then they'll buy back their shares instead.

What they're saying is, the best use of their money is to buy back their own stock, to invest in themselves. Typically, this signals to the market that the company is believing in themselves.

Concurrently, the earnings will now be divided by fewer outstanding shares, thus raising the value of each share.

Hope that helps!

Answer 2

First, let's look at how a stock-repurchase plan works and why a company may choose to buy back its shares.

If a company's board of directors decides that it wants to repurchase some of the company's stock, it authorizes a maximum dollar amount of shares to be repurchased.

Just because a buyback program is authorized, it doesn't mean that the company must repurchase the shares.

Just like any investor, the company will buy shares when the price is right.

After the company purchases its stock, the shares are then held as what's known as treasury stock.

By repurchasing stock, the company essentially reduces the number of shares outstanding.

Companies may choose to repurchase their stock for several reasons. One reason is that buying back some of the shares will boost the company's earnings per share.

When fewer shares are outstanding, earnings per share will rise because there are a smaller number of shares over which to distribute the earnings (profits).

A stock-repurchase plan can also signal that a company has excess cash available.

When a company chooses to use its excess cash to repurchase shares of its own stock, it may be because the company may think the shares are selling below a level that they're actually worth.

This sends a signal to investors that the company thinks its own stock is the best investment it could make. When the company buys back its own stock, it forgoes investing in other securities or making additional capital investments.

A stock-repurchase program also can be implemented to acquire shares for management and employee incentive plans, including stock options and stock-purchase plans, or for employer contributions to a 401(k) or other qualified retirement plan.

Many businesses that are expanding do so through mergers and acquisitions. Companies initiate stock-repurchase plans to build currency for acquisitions.

A company would increase its amount of treasury stock so that it could use those shares to acquire another company. For this reason, a stock-repurchase program could be considered a sign of growth.

A company announces stock-repurchase programs for a variety of reasons, such as funding employee retirement or to increase earnings per share. It is important as an investor to be aware of reasons for a repurchase announcement so that you can be prepared for how it might affect your investment.

Generally, company stock-repurchase plans are good news for investors in companies repurchasing their stock.

Stock repurchases can be a sign that a company is financially healthy. Thus a buyback program also often results in an increase in the price of the stock.

However, to maintain that increased price level, a company's financial results must live up to the expectations that the repurchase announcement seems to signal.

You should continue to monitor the company's performance through your financial consultant to ensure that it continues to meet your expectations.

Answer 3

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RE:
Why do companies repurchase their own stock?
Today a company I own shares in repurchased some of its own shares. What is the purpose?

Answer 4

Companies stand ready to repurchase their stock to show credibility of their operations. There are stock specialists in the Exchanges who are directed by the company to do so. The second reason is to reduce the number of stocks outstanding, so that the value of the stock can be increased. The third reason which is similar to the two above is to change or maintain the capital structure of the Company. In all cases it is counted as Tressury Stock.

Answer 5

Stock buyback can change the value of the stock that is presently bought and sold on the market.

Some companies buyback their stock because they think that a new product that they are creating will make the company worth more and the price that is in the market will rise. Then they can re-offer the stock at the higher price.

The uncrupulous executive tries to get the stock price to rise just before he/she/it unloads their stock options. He/she/it will also try to get the stock price down before GETTING a stock option as part of the compensation package.

Manipulating the stock is what these a**h**es do best.

Answer 6

Could be a variety of reasons, main reason being stimulation of the market price of shares at which they are listed in stock exchanges

Answer 7

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Answer 8

To gain more controlling interest of the Company, which in the long run, can alleviate threats of being bought out.

Answer 9

Another reason may be to keep controlling interest of the company.

Answer 10

to stimulate the price of it.